pld-10q_20190930.htm

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

☒	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended September 30, 2019

☐	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from ______________ to ______________

Commission File Number: 001-13545 (Prologis, Inc.) 001-14245 (Prologis, L.P.)

Prologis, Inc.

Prologis, L.P.

(Exact name of registrant as specified in its charter)

Maryland (Prologis, Inc.) Delaware (Prologis, L.P.)		94-3281941 (Prologis, Inc.) 94-3285362 (Prologis, L.P.)
(State or other jurisdiction of incorporation or organization)		(I.R.S. Employer Identification No.)

Pier 1, Bay 1, San Francisco, California		94111
(Address or principal executive offices)		(Zip Code)

(415) 394-9000

(Registrants’ telephone number, including area code)

(Former name, former address and former fiscal year, if changed since last report)

Securities registered pursuant to Section 12(b) of the Act:

	Title of Each Class	Trading Symbol(s)	Name of Each Exchange on Which Registered
Prologis, Inc.	Common Stock, $0.01 par value	PLD	New York Stock Exchange
Prologis, L.P.	1.375% Notes due 2021	PLD/21	New York Stock Exchange
Prologis, L.P.	3.000% Notes due 2022	PLD/22	New York Stock Exchange
Prologis, L.P.	3.375% Notes due 2024	PLD/24	New York Stock Exchange
Prologis, L.P.	3.000% Notes due 2026	PLD/26	New York Stock Exchange
Prologis, L.P.	2.250% Notes due 2029	PLD/29	New York Stock Exchange
Prologis, L.P.	Floating Rate Notes due 2020	PLD/20B	New York Stock Exchange

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing for the past 90 days.

Prologis, Inc.	Yes	☒	No	☐
Prologis, L.P.	Yes	☒	No	☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter periods that the registrant was required to submit such files).

Prologis, Inc.	Yes	☒	No	☐
Prologis, L.P.	Yes	☒	No	☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See definitions of “large accelerated filer”, “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act:

Prologis, Inc.:
Large accelerated filer ☒	Accelerated filer ☐	Non-accelerated filer ☐	Smaller reporting company ☐	Emerging growth company ☐

Prologis, L.P.:
Large accelerated filer ☐	Accelerated filer ☐	Non-accelerated filer ☒	Smaller reporting company ☐	Emerging growth company ☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Securities Exchange Act of 1934).

Prologis, Inc.	Yes	☐	No	☒
Prologis, L.P.	Yes	☐	No	☒

The number of shares of Prologis, Inc.’s common stock outstanding at October 17, 2019, was approximately 631,744,000.

EXPLANATORY NOTE

This report combines the quarterly reports on Form 10-Q for the period ended September 30, 2019, of Prologis, Inc. and Prologis, L.P. Unless stated otherwise or the context otherwise requires, references to “Prologis, Inc.” or the “Parent” mean Prologis, Inc. and its consolidated subsidiaries; and references to “Prologis, L.P.” or the “Operating Partnership” or the “OP” mean Prologis, L.P., and its consolidated subsidiaries. The terms “the Company,” “Prologis,” “we,” “our” or “us” means the Parent and the OP collectively.

The Parent is a real estate investment trust (a “REIT”) and the general partner of the OP. At September 30, 2019, the Parent owned 97.22% common general partnership interest in the OP and 100% of the preferred units in the OP. The remaining 2.78% common limited partnership interests are owned by unaffiliated investors and certain current and former directors and officers of the Parent.

We operate the Parent and the OP as one enterprise. The management of the Parent consists of the same members as the management of the OP. These members are officers of the Parent and employees of the OP or one of its subsidiaries. As sole general partner, the Parent has control of the OP through complete responsibility and discretion in the day-to-day management and therefore, consolidates the OP for financial reporting purposes. Because the only significant asset of the Parent is its investment in the OP, the assets and liabilities of the Parent and the OP are the same on their respective financial statements.

We believe combining the quarterly reports on Form 10-Q of the Parent and the OP into this single report results in the following benefits:

•	enhances investors’ understanding of the Parent and the OP by enabling investors to view the business as a whole in the same manner as management views and operates the business;

•	eliminates duplicative disclosure and provides a more streamlined and readable presentation as a substantial portion of the Company’s disclosure applies to both the Parent and the OP; and

•	creates time and cost efficiencies through the preparation of one combined report instead of two separate reports.

It is important to understand the few differences between the Parent and the OP in the context of how we operate the Company. The Parent does not conduct business itself, other than acting as the sole general partner of the OP and issuing public equity from time to time. The OP holds substantially all the assets of the business, directly or indirectly. The OP conducts the operations of the business and is structured as a partnership with no publicly traded equity. Except for net proceeds from equity issuances by the Parent, which are contributed to the OP in exchange for partnership units, the OP generates capital required by the business through the OP’s operations, incurrence of indebtedness and issuance of partnership units to third parties.

The presentation of noncontrolling interests, stockholders’ equity and partners’ capital are the main areas of difference between the consolidated financial statements of the Parent and those of the OP. The differences in the presentations between stockholders’ equity and partners’ capital result from the differences in the equity and capital issuances in the Parent and in the OP.

The preferred stock, common stock, additional paid-in capital, accumulated other comprehensive income (loss) and distributions in excess of net earnings of the Parent are presented as stockholders’ equity in the Parent’s consolidated financial statements. These items represent the common and preferred general partnership interests held by the Parent in the OP and are presented as general partner’s capital within partners’ capital in the OP’s consolidated financial statements. The common limited partnership interests held by the limited partners in the OP are presented as noncontrolling interest within equity in the Parent’s consolidated financial statements and as limited partners’ capital within partners’ capital in the OP’s consolidated financial statements.

To highlight the differences between the Parent and the OP, separate sections in this report, as applicable, individually discuss the Parent and the OP, including separate financial statements and separate Exhibit 31 and 32 certifications. In the sections that combine disclosure of the Parent and the OP, this report refers to actions or holdings as being actions or holdings of Prologis.

PROLOGIS

INDEX

			Page Number
PART I.	Financial Information
	Item 1.	Financial Statements		1
	Prologis, Inc.:
		Consolidated Balance Sheets – September 30, 2019 and December 31, 2018		1
		Consolidated Statements of Income – Three and Nine Months Ended September 30, 2019 and 2018		2
		Consolidated Statements of Comprehensive Income – Three and Nine Months Ended September 30, 2019 and 2018		3
		Consolidated Statements of Equity – Three and Nine Months Ended September 30, 2019 and 2018		4
		Consolidated Statements of Cash Flows – Nine Months Ended September 30, 2019 and 2018		5
	Prologis, L.P.:
		Consolidated Balance Sheets – September 30, 2019 and December 31, 2018		6
		Consolidated Statements of Income – Three and Nine Months Ended September 30, 2019 and 2018		7
		Consolidated Statements of Comprehensive Income – Three and Nine Months Ended September 30, 2019 and 2018		8
		Consolidated Statements of Capital – Three and Nine Months Ended September 30, 2019 and 2018		9
		Consolidated Statements of Cash Flows – Nine Months Ended September 30, 2019 and 2018		10
	Prologis, Inc. and Prologis, L.P.:
		Notes to the Consolidated Financial Statements		11
		Note 1. General		11
		Note 2. DCT Transaction		12
		Note 3. Real Estate		13
		Note 4. Unconsolidated Entities		15
		Note 5. Assets Held for Sale or Contribution		17
		Note 6. Debt		17
		Note 7. Noncontrolling Interests		19
		Note 8. Long-Term Compensation		20
		Note 9. Earnings Per Common Share or Unit		21
		Note 10. Financial Instruments and Fair Value Measurements		23
		Note 11. Business Segments		26
		Note 12. Supplemental Cash Flow Information		28
		Reports of Independent Registered Public Accounting Firm		29
	Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations		31
	Item 3.	Quantitative and Qualitative Disclosures About Market Risk		48
	Item 4.	Controls and Procedures		49
PART II.	Other Information
	Item 1.	Legal Proceedings		50
	Item 1A.	Risk Factors		50
	Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds		50
	Item 3.	Defaults Upon Senior Securities		50
	Item 4.	Mine Safety Disclosures		50
	Item 5.	Other Information		50
	Item 6.	Exhibits		50

PART I. FINANCIAL INFORMATION

ITEM 1. Financial Statements

PROLOGIS, INC.

CONSOLIDATED BALANCE SHEETS

(In thousands, except per share data)


	September 30, 2019			December 31,
	(Unaudited)			2018
ASSETS
Investments in real estate properties	$	34,911,650		$	34,586,987
Less accumulated depreciation		5,287,640			4,656,680
Net investments in real estate properties		29,624,010			29,930,307
Investments in and advances to unconsolidated entities		5,886,820			5,745,294
Assets held for sale or contribution		799,017			622,288
Net investments in real estate		36,309,847			36,297,889

Lease right-of-use assets		437,038			-
Cash and cash equivalents		1,024,994			343,856
Other assets		1,676,306			1,775,919
Total assets	$	39,448,185		$	38,417,664

LIABILITIES AND EQUITY
Liabilities:
Debt	$	11,459,223		$	11,089,815
Lease liabilities		432,122			-
Accounts payable and accrued expenses		808,898			760,515
Other liabilities		812,365			766,446
Total liabilities		13,512,608			12,616,776

Equity:
Prologis, Inc. stockholders’ equity:
Series Q preferred stock at stated liquidation preference of $50 per share; $0.01 par value; 1,379 shares issued and outstanding and 100,000 preferred shares authorized at September 30, 2019 and December 31, 2018		68,948			68,948
Common stock; $0.01 par value; 631,743 shares and 629,616 shares issued and outstanding at September 30, 2019 and December 31, 2018, respectively		6,317			6,296
Additional paid-in capital		25,693,652			25,685,987
Accumulated other comprehensive loss		(1,050,246	)		(1,084,671	)
Distributions in excess of net earnings		(2,201,461	)		(2,378,467	)
Total Prologis, Inc. stockholders’ equity		22,517,210			22,298,093
Noncontrolling interests		3,418,367			3,502,795
Total equity		25,935,577			25,800,888
Total liabilities and equity	$	39,448,185		$	38,417,664

The accompanying notes are an integral part of these Consolidated Financial Statements.

PROLOGIS, INC.

CONSOLIDATED STATEMENTS OF INCOME

(Unaudited)

(In thousands, except per share amounts)

	Three Months Ended						Nine Months Ended
	September 30,						September 30,
	2019			2018			2019			2018
Revenues:
Rental	$	710,465		$	608,974		$	2,107,961		$	1,709,596
Strategic capital		230,467			71,142			393,416			279,800
Development management and other		1,249			2,316			3,228			7,968
Total revenues		942,181			682,432			2,504,605			1,997,364
Expenses:
Rental		180,864			147,184			550,070			423,454
Strategic capital		63,404			35,390			138,668			114,100
General and administrative		65,199			62,244			201,176			182,287
Depreciation and amortization		282,254			252,702			850,639			660,456
Other		2,294			3,391			9,643			11,145
Total expenses		594,015			500,911			1,750,196			1,391,442

Operating income before gains on real estate transactions, net		348,166			181,521			754,409			605,922
Gains on real estate transactions, net		123,314			194,058			535,717			483,430
Operating income		471,480			375,579			1,290,126			1,089,352

Other income (expense):
Earnings from unconsolidated entities, net		46,302			56,634			151,524			181,839
Interest expense		(60,244	)		(64,186	)		(179,873	)		(166,761	)
Interest and other income, net		654			1,891			12,876			9,508
Foreign currency and derivative gains, net		59,492			21,513			70,267			65,801
Losses on early extinguishment of debt, net		(13,585	)		(1,955	)		(16,086	)		(2,657	)
Total other income		32,619			13,897			38,708			87,730
Earnings before income taxes		504,099			389,476			1,328,834			1,177,082
Total income tax expense		13,086			13,956			53,230			44,612
Consolidated net earnings		491,013			375,520			1,275,604			1,132,470
Less net earnings attributable to noncontrolling interests		38,867			27,684			89,636			81,169
Net earnings attributable to controlling interests		452,146			347,836			1,185,968			1,051,301
Less preferred stock dividends		1,507			1,491			4,498			4,443
Net earnings attributable to common stockholders	$	450,639		$	346,345		$	1,181,470		$	1,046,858

Weighted average common shares outstanding – Basic		630,929			574,520			630,356			546,612
Weighted average common shares outstanding – Diluted		655,259			597,647			654,818			568,599

Net earnings per share attributable to common stockholders – Basic	$	0.71		$	0.60		$	1.87		$	1.92

Net earnings per share attributable to common stockholders – Diluted	$	0.71		$	0.60		$	1.86		$	1.90

The accompanying notes are an integral part of these Consolidated Financial Statements.

PROLOGIS, INC.

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(Unaudited)

(In thousands)

	Three Months Ended						Nine Months Ended
	September 30,						September 30,
	2019			2018			2019			2018
Consolidated net earnings	$	491,013		$	375,520		$	1,275,604		$	1,132,470
Other comprehensive income (loss):
Foreign currency translation gains (losses), net		30,053			(10,316	)		42,471			(153,359	)
Unrealized gains (losses) on derivative contracts, net		(616	)		4,454			(6,974	)		298
Comprehensive income		520,450			369,658			1,311,101			979,409
Net earnings attributable to noncontrolling interests		(38,867	)		(27,684	)		(89,636	)		(81,169	)
Other comprehensive loss (income) attributable to noncontrolling interests		(574	)		783			(1,072	)